Collision Course: Roubini Forecasts a possible perfect Economic Storm in 2013

Collision Course: Roubini Forecasts a possible perfect Economic Storm in 2013
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While the global economic situation is not improving, things may get worse according to Dr Roubini, the New York University professor. While giving a speech at a Nomura investor forum at The Ritz-Carlton, Millenia Singapore yesterday, Roubini discussed the possibility of a “perfect storm” of fiscal woe in the United States, a slowdown in China, European debt restructuring and stagnation in Japan all converging on the global economy. “There’s a one-in-three chance the factors will combine to stunt growth from 2013”, said Roubini, who predicted the global financial crisis and is sometimes referred to as Dr Doom.

Other possible outcomes are “anaemic but okay” global growth or an “optimistic” scenario in which expansion improves.

“There are already elements of fragility,” he said. “Everybody’s kicking the can down the road of too much public and private debt. The can is becoming heavier and heavier, and bigger on debt, and all these problems may come to a head by 2013 at the latest.” Elevated US unemployment, a surge in oil and food prices, rising interest rates in Asia and trade disruption from Japan’s earthquake threaten to sap the world economy.

On U.S. financial markets, Roubini said he would stay defensive on equities but he did not believe there was a bubble in treasuries.

“At current levels, U.S. treasuries are fairly valued. I don’t think there is a bond bubble,” he said, adding U.S. 10-year bond yields at 3 percent or slightly lower were consistent with the low growth and low inflation outlook for the world’s largest economy.

He also added that China avoided a hard landing during the global credit crunch but faces a downturn after 2013 as it will struggle to keep increasing fixed investments. “There is a meaningful probability of a hard landing in China after 2013.”

Last but not least, the Euro zone faces a likely progressive collapse due to Greece difficulties. The EU is currently providing a second package for Greece to fund the country through 2014 but analysts believe Athens will struggle even then to avoid a harsh debt restructuring in the future. “Kicking the can down the road, muddling through, extending and pretending that Greece will be better and you buy time… may make the collapse more disorderly over time,” Roubini said.

 

Photo Credit: Vice President Siew exchanges views with economist Nouriel Roubini in 2011 Business Today Global Economic Outlook Forum. (2010/12/01) by By presidential office / FlickR